Intent Declared Summary

In 2006, China underwent a mutual evaluation of its anti-money laundering (AML) and combating the financing of terrorism (CFT) regime against the Financial Action Task Force (FATF) forty recommendations and nine special recommendations. This mutual evaluation was a joint effort by the FATF and the Eurasian Group (EAG). The findings of this evaluation were published in a 2007 FATF report in which the assessors rated China partially compliant or non-compliant with 25 of the recommendations and special recommendations, five of which are stipulated as core by the FATF. Specifically China is only partially compliant with recommendation (R) 1 on the criminalization of money laundering, R 5 on customer due diligence, R 13 on suspicious transactions reporting, special recommendation II on criminalization of terrorist financing, and SR IV on suspicious transactions reporting related to terrorist financing. However, since the mutual evaluation, several reports, including from the FATF, have commended the Chinese authorities for the steps they have taken to address these weaknesses. In 2007 and 2008, the EAG published follow up reports to the mutual evaluation in which the assessors conclude that China has made significant progress in implementing most of the criteria of the FATF's core recommendations. Owing to this the EAG is considering withdrawing China from the enhanced follow-up process and has scheduled the next follow-up report to coincide with the 11th EAG Plenary meeting in 2009. Nevertheless, the follow-up reports do not explicitly address China's actual compliance with the FATF recommendations, instead, they only mention the measures that the Chinese authorities have undertaken since the mutual evaluation. The FATF, in its 2008-2009 Annual Report, named China as one of the jurisdictions that have endorsed the FATF's 40+9 recommendations.

General Overview

In 2006, experts from the Financial Action Task Force (FATF) together with experts from the Eurasian Group (EAG) conducted a mutual evaluation of China's anti money laundering (AML) and combating the financing of terrorism (CFT) regime against the FATF's forty recommendations and nine special recommendations. The FATF released two reports based on the findings of the 2006 evaluation - a detailed report and a summary report. According to the summary report, China enacted AML/CFT measures in a relatively short period of time. Starting in 2003, the Chinese government began to take a very proactive stand in combating money laundering and terrorist financing activities through the passage of various laws. According to the 2007 FATF Summary report "shortly after becoming an observer to the Financial Action Task Force (FATF) in 2005, China enacted its AML/CFT law and two related regulations in October 2006 which are applicable to all financial institutions. Since then, China has actively continued to refine and enhance its AML/CFT regime" (p. 2).

Nevertheless, the findings of the mutual evaluation were not generally satisfactory. The assessors rated China partially compliant or non-compliant with 25 of the recommendations and special recommendations, five of which are stipulated as core by the FATF. Specifically China is only partially compliant with recommendation (R) 1 on the criminalization of money laundering, R 5 on customer due diligence, R 13 on suspicious transactions reporting, special recommendation II on criminalization of terrorist financing, and SR IV on suspicious transactions reporting related to terrorist financing. However, since the initial mutual evaluation in 2006, EAG has published two follow-up reports (in 2007 and 2008) on China's adoption of the mutual evaluation's recommendations. Per these reports, the Chinese authorities have taken several measures to address the deficiencies identified by the mutual evaluation in the country's AML/CFT framework. The 2008 EAG report concludes that "since the mutual evaluation China has made significant progress on the main FATF Recommendations (but not all of the criteria of these Recommendations). In this regard, it seems relevant to consider withdrawing China from the enhanced follow-up process and ask China to present the next follow-up report to the 11th EAG Plenary meeting" (p. 4). According to the FATF website, China is a member of the FATF. Also, the FATF, in its 2008-2009 Annual Report named China as one of the jurisdictions that have endorsed the FATF's 40+9 recommendations.

China has criminalized money laundering pursuant to Articles 349, 191 and 312 of the Chinese Penal Code, which, according to the FATF 2007 Summary report, "taken together or separately, cover most of the relevant types of money laundering activity" (p. 2). Money laundering is punishable by five to ten years of imprisonment, depending on the seriousness of the offense, fines and confiscation of the proceeds. According to the 2008 U.S. Department of State (DoS) report, the Anti-Money Laundering Law No. 3600 of 2006 (AML Law) came into force in January 2007. A key function of the new AML Law is that it requires financial institutions to report large and suspicious transactions. To support the new AML Law, the People's Bank of China (PBC) revised its regulatory framework by launching the Rules for Anti-Money Laundering by Financial Institutions (AML Rules) and the Administrative Rules for Reporting of Large-Value and Suspicious Transactions by Financial Institutions (LVT/STR Rules) in early 2007. The revised rules require all financial institutions (i.e. securities, insurance and trust companies) to report large and suspicious transactions, in addition to being held responsible for maintaining their own anti-money laundering mechanisms.

China criminalizes terrorist financing pursuant to Article 120bis of the Chinese Penal Code, which serves as a predicate offense for money laundering. Under Article 120bis, terrorist financing is punishable by a fine and imprisonment of no more than five years. If the offense is adjudged "serious," the maximum term of imprisonment is 15 years. The FATF in its 2007 Summary report questions the dissuasive effect of these sanctions "as the punishment for violation of [Article 120bis] seems quite low in comparison with the serious threat that the offense poses for public security" (p. 3). Also, the FATF report points out that Chinese law does not criminalize the activity of collecting funds for terrorists or terrorist organizations either for the purpose of committing a terrorist act or any other purpose. However, a 2009 U.S. Department of State (DoS) report notes that in line with the definition laid out in the Vienna Convention, China is currently reviewing a judicial interpretation of the Penal Code so that the terrorist financing offence criminalizes “sole and knowing collection of terrorist funds” (p. 169). Similarly, the 2007 EAG report notes that, at the time, the PBC was putting together a Working Commission "to put forward a formal proposal to the National People’s Congress or a draft Judicial Interpretation on the Penal Code by June 2008. The Penal Code Working Commission and Joint-Ministerial Conference [was] also [expected] to address issues related to implementation of the relevant international conventions" (p. 2). However, there is no recent information publicly available as to whether these amendments have actually been passed.

According to the 2007 FATF report, several Chinese laws provide for a comprehensive and detailed confiscation (Chinese Penal Code), seizure (Criminal Procedure Code) and freezing (AML Law) regime. More specifically, Articles 64 and 191 of the Chinese Penal Code cover the mandatory requirements on confiscation of the illegal proceeds of crimes linked to money laundering. The FATF report notes a particular weakness in China's terrorist financing confiscation and seizure regime in that China has not implemented United Nations Security Council Resolution (UNSCR) 1267 and UNSCR 1373 in a manner that meets the requirements of FATF special recommendation (SR) III. More specifically, the mutual evaluation observes that China's seizure regime does not sufficiently and adequately respond to the freezing designations set out in the relevant United Nations (UN) resolutions. Lastly, the report notes that China has "no clear determination of the scope of the freezing obligations in respect of what assets need to be targeted and their link with the terrorist individuals and entities" (p. 155). As a result of these and several other weaknesses, as at the release of the FATF Summary report in June 2007, no assets have been frozen pursuant to UNSCR 1267 or based on any national or foreign lists, and no related statistics exist.

China's financial intelligence unit's (FIU) is located within the PBC. Its function is divided between two units located within the PBC: the Anti-Money Laundering Bureau (AMLB), which was established in 2003, and the China Anti-Money Laundering Monitoring & Analysis Center (CAMLMAC), created in 2004. The AMLB coordinates all anti-money laundering programs and conducts administrative and policy oversight, while the CAMLMAC is primarily responsible for receiving and analyzing suspicious transaction reports (STRs) and large value transaction reports (LVTs). Nevertheless, according to the FATF's Summary report, CAMLMAC and the AMLB work together to perform follow-up analysis on LVTs and STRs, even though most of the additional analysis and dissemination duties are conducted by the AMLB. The collective responsibility of CAMLMAC and the AMLB is to receive, analyze, and disseminate all STRs submitted by entities subject to the AML Law to the Ministry of Public Security (MoPS) or the Ministry of State Security (MoSS) for further investigation. China's new AML Law of 2007 requires that financial institutions file such STRs with CAMLMAC.

The 2008 U.S. DoS report states that, from July 1, 2005 to June 30, 2006 (latest year for which this information is available), CAMLMAC received 619,962 Renminbi (RMB) STRs and 2,245,267 foreign currency STRs. In addition, by the end of 2005, CAMLMAC identified 683 STRs (involving RMB 137.8 billion or approximately $18.9 billion) for further investigation. Furthermore, since its inception in April 2004, CAMLMAC has referred 57 files concerning 80,000 STRs to the MPS for investigation (as at the release of the U.S. DoS report in March 2008). Nine of these referrals resulted in cases being filed for investigation, even though ultimately only one has been referred for prosecution. Lastly, according to the U.S. DoS report, since October 2005, China's FIU has sent about 10 suspicious transaction dossiers to other agencies, including five to the Ministry of State Security (MSS). As at the release of the U.S. DoS report in March 2008, the MSS is investigating four of these cases, while the other referral was closed after investigation.

The 2009 U.S. DoS report notes that, in August 2007, China adopted the Administrative Rules for Financial Institutions on Customer Identification and Record Keeping of Customer Identity and Transaction Information (CDD Rules), which primarily require all financial institutions to identify and verify their customers, including the beneficial owner. Furthermore, the new CDD Rules extend the obligation to identify legal persons to all financial institutions. Prior to the adoption of these new rules, there was no requirement in Chinese law for the identification and verification of the beneficial owner, and only the banking sector was subject to specific requirements concerning the identification of legal persons.

The 2007 FATF report observes that, as of the release date of the report in June 2007, neither China's criminalization of money laundering nor its seizure and confiscation regime were fully in line with the United Nations (UN) Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention), the UN Convention against Transnational Organized Crime (Palermo Convention) and the UN International Convention for the Suppression of the Financing of Terrorism (TF Convention). In 2006, China became a party to the Terrorist Financing Convention and the UN Convention against Corruption. Also, China has applied for membership to the Egmont Group. As of December 2009, China was still not a member of the Egmont Group of FIUs.

The Principles

NC1. Legal Systems and Related Institutional Measures

The 2007 FATF mutual evaluation found China partially compliant with Recommendation (R) 1 regarding the money laundering offense and partially compliant with R 2 on its mental element and corporate liability. China has criminalized money laundering pursuant to Articles 349, 191 and 312 of the Chinese Penal Code, which, according to the FATF summary report, "taken together or separately, cover most of the relevant types of money laundering activity" (p. 2). Money laundering is punishable by five to ten years of imprisonment, depending on the seriousness of the offense, fines and confiscation of the proceeds. The FATF report attributes its R 1 rating of China to several weaknesses namely: (1) the low number of convictions for money laundering; (2) self-laundering is not criminalized; and (3) terrorist financing is not adequately covered as a designated category of predicate offense. The mutual evaluation noted that, despite Article 191 of the Penal Code covering drugs, organized crime, smuggling and terrorism as predicate offenses, Chinese law enforcement had, as at the release of the report in June 2007, brought only three money laundering cases before the court. According to the 2009 U.S. DoS report, the Anti-Money Laundering Law No. 3600 came into force in China in January 2007. A key function of the new AML Law is that it requires financial institutions to report large and suspicious transactions, and to keep thorough records on accounts and transactions. To support the new AML Law, the PBC revised its regulatory framework by launching the Rules for Anti-Money Laundering by Financial Institutions and the Administrative Rules for Reporting of Large-Value and Suspicious Transactions by Financial Institutions in early 2007. The newly revised rules require all financial institutions (i.e. securities, insurance and trust companies) to report large and suspicious transactions, in addition to being held responsible for maintaining their own anti-money laundering mechanisms. In its 2008 follow-up report, the EAG in reporting measures taken by the Chinese authorities to address the recommendations made by the mutual evaluation notes that a "draft Penal Code amendment extending corporate criminal liability passed its first reading in August 2008" (p. 2). The report, however, does not explicitly rate China on R 1.

According to the 2007 FATF report, China is partially compliant with Special Recommendation (SR) II on the criminalization of terrorist financing. China criminalizes terrorist financing pursuant to Article 120bis of the Chinese Penal Code, which serves as a predicate offense for money laundering. Under Article 120bis, terrorist financing is punishable by a fine and imprisonment of no more than five years. If the offense is adjudged "serious," the maximum term of imprisonment is 15 years. The FATF in its Summary report questions the dissuasive effect of these sanctions "as the punishment for violation of [Article 120bis] seems quite low in comparison with the serious threat that the offense poses for public security" (p. 3). The mutual evaluation observes several other problems with China's terrorist financing legal regime. For example, at the time of the on-site FATF visit, there had been no terrorist financing investigations, prosecutions or convictions. Furthermore, due partially to Article 120bis not defining the term "terrorist activities," China's terrorist financing legal regime does not cover several key terrorist offenses listed in the International Convention for the Suppression of Terrorist Financing (1999). Lastly, the FATF report notes that China does not criminalize the activity of collecting funds for terrorists or terrorist organizations either for the purpose of committing a terrorist act or any other purpose. However, the 2009 U.S. DoS report notes that in line with the definition laid out in the Vienna Convention, China is currently reviewing a judicial interpretation of the Penal Code so that the terrorist financing offence criminalizes “sole and knowing collection of terrorist funds" (p. 169).

Concerning confiscation, freezing and seizing of proceeds of crime (R 3), the FATF mutual evaluation rates China as largely compliant, noting that several Chinese laws provide for a comprehensive and detailed confiscation (Chinese Penal Code), seizure (Criminal Procedure Code), and freezing (AML Law) regime. More specifically, Articles 64 and 191 of the Chinese Penal Code cover the mandatory confiscation of the illegal proceeds of crime linked to money laundering. However, the FATF report also points out that, while mandatory, the confiscation of proceeds of crime is not systematically pursued and imposed by the courts. The FATF attributes this to a lack of awareness and implementation on the part of Chinese courts and law enforcement authorities. Otherwise, according to the 2007 FATF summary report, China's confiscation, seizure and freezing system "provides sufficient legal instruments to enable an effective recovery of criminal assets" (p. 3).

With regards to SR III relating to the freezing of terrorist financing-related assets, the FATF mutual evaluation rated China as non-complaint, noting as a particular weakness in China's terrorist financing confiscation and seizure regime the fact that China has not implemented UNSCR 1267 and UNSCR 1373 in a manner that meets the FATF's requirements for SR III. More specifically, the mutual evaluation observed that China's seizure regime does not sufficiently and adequately respond to the freezing designations set out in the relevant UN resolutions. Lastly, the report notd that China has "no clear determination of the scope of the freezing obligations in respect of what assets need to be targeted and their link with the terrorist individuals and entities" (p. 155). As a result of these and several other weaknesses, as at the release of the FATF report in June 2007, no assets had been frozen pursuant to UNSCR 1267 or based on any national or foreign lists, and no related statistics exist. The 2007 EAG report notes that, at the time, the PBC was putting together a Working Commission "to put forward a formal proposal to the National People’s Congress or a draft Judicial Interpretation on the Penal Code by June 2008. The Penal Code Working Commission and Joint-Ministerial Conference [was] also [expected] to address issues related to implementation of the relevant international conventions" (p. 2). However, there is no recent information publicly available as to whether these amendments have actually been passed.

Regarding the FIU and its functions, the FATF report classifies China as largely compliant on R 26; largely compliant on R 30 about resources, integrity and training; and largely compliant with R 32 on statistics keeping. China's FIU's function is divided between two units located within the PBC: the AMLB, which was established in 2003, and the CAMLMAC created in 2004. The AMLB coordinates all anti-money laundering programs and conducts administrative and policy oversight, while the CAMLMAC is primarily responsible for receiving and analyzing suspicious transaction reports, and large value transaction reports. Nevertheless, according to the FATF report, CAMLMAC and the AMLB work together to perform follow-up analysis on LVTs and STRs, even though most of the additional analysis and dissemination duties are conducted by the AMLB. The collective responsibility of CAMLMAC and the AMLB is to receive, analyze and disseminate all STRs submitted by entities subject to the AML Law to the MoPS or to the MoSS for further investigation. China's new AML Law of 2007 requires that financial institutions file such STRs with CAMLMAC.

The 2007 FATF mutual evaluation observes that China is largely compliant with R 27 on law enforcement authorities; compliant with R 28 on the powers of competent authorities; largely compliant on resources, integrity and training (R 30); and largely complaint on statistics (R 32). The 2008 U.S. DoS report notes that, over the past five years, China has made significant progress in improving its AML/CFT regime through, amongst other things, the enhancing of law enforcement mechanisms. According to the 2007 FATF mutual evaluation, the MoPS is China's main law enforcement body. The MoPS is primarily responsible for investigating STRs, and these duties are specifically handled by the AML Division of the MoPS Economic Crime Investigation Department (ECID) and the MPS' Anti-Terrorism Bureau. The MoSS investigates crimes against state security, such as terrorism and related crimes. The Supreme People's Procuratorate (SPP) oversees the approval of arrests, prosecution, and supervision of money laundering cases. Lastly, the Supreme People's Court (SPC) directs the trial of money laundering crimes.

NC2. Preventive Measures - Financial Institutions

The 2007 FATF mutual evaluation rated China partially compliant with R 5 relating to customer due diligence and non-compliant on R 6 concerning politically exposed persons. On correspondent banking (R 7), China was partially compliant, and on new technologies and non face-to-face business (R 8), China was rated as largely compliant. The FATF report highlighted several important weaknesses in China's CDD regime. For example: (1) there was no requirement in Chinese law for the identification and verification of the beneficial owner; (2) only the banking sector was subject to specific requirements concerning the identification of legal persons; and (3) China had no specific and comprehensive legal requirement to conduct ongoing due diligence. However, the 2009 U.S. DoS report notes that, in August 2007, China adopted the Administrative Rules for Financial Institutions on Customer Identification and Record Keeping of Customer Identity and Transaction Information (CDD Rules), which primarily require all financial institutions to identify and verify their customers, including the beneficial owner. Furthermore, the new CDD Rules extend the obligation to identify legal persons to all financial institutions. According to the 2008 EAG report, "most of the specific requirements of R 5 are now addressed in the CDD Rules. These rules require all financial institutions to identify and verify their customers, including the beneficial owner (articles 3, 11, 12 and 14)" (p. 2). The report, however, stops short of assigning an explicit compliance level for China in regards to R 5. For R 6 regarding politically exposed persons (PEP), the FATF report noted that China had "no AML requirements in relation to foreign PEPs" (p. 151). However, the new CDD Rules also address this issue by introducing specific requirements regarding foreign PEPs. For example, financial institutions must now obtain approval from senior management before opening an account and ascertaining the source of funds. On correspondent banking (R7), the FATF report particularly noted the absence in Chinese law or regulations of specific requirements for banks to gather adequate information about a respondent institution to fully understand the nature of the respondent's business. However, in its 2008 report, the EAG notes that current "CDD Rules require financial institutions to gather sufficient information to understand the nature of a respondent correspondent bank’s business, the adequacy of its AML/CFT measures and quality of its supervision, and to document each institution’s CDD and record keeping responsibilities (article 6)" (p. 2). China was rated partially compliant with R 9 on third party and introduced business.

The FATF report rates China largely compliant with R 10 on record keeping, and largely compliant with SR VII on wire transfer rules. The only shortcoming cited for China on R 10 on record keeping was the absence in Chinese law and regulations of the requirement that financial institutions retain business correspondence and similar documents. The report points out one weakness in China's wire transfer rules, noting that the verification of customer identification is only required for payments in excess of RMB 50,000 (US$6,300). China was adjudged partially compliant on R 11 on unusual transactions. The 2008 EAG report notes that "Administrative Rules for the Reporting of Large-Value and Suspicious Transactions by Financial Institutions (LVT/STR Rules), which came into force on 1 March 2007, extend the obligation to pay special attention to unusual transactions to the insurance and securities sectors… financial institutions are also required to report any other transactions that is abnormal in terms of amount, frequency, flow, nature, etcetera and is considered to be suspicious after analysis (i.e. a suspicious transaction) (article 14)" (p. 3). The mutual evaluation rated China non compliant with R 21 on special attention to high risk countries; however, the 2008 EAG report notes that current CDD Rules require financial institutions to pay special attention to higher risk customers, including those from countries/regions with weak AML/CFT regimes.

The FATF mutual evaluation rated China partially compliant with R 13 relating to suspicious transaction reporting and compliant with R 14 about protection and no tipping-off. With regards to R 13, the 2007 mutual evaluation noted as deficiencies the following: (1) the reporting of suspicions of terrorism financing and attempted transactions was not explicitly required in Chinese law; and (2) China had no RMB reporting obligation for the securities and insurance sectors. Furthermore, the 2008 U.S. DoS report states that, from July 1, 2005 to June 30, 2006, CAMLMAC received 619,962 RMB STRs and 2,245,267 foreign currency STRs. Most importantly, by the end of 2005, CAMLMAC identified only 683 STRs (involving RMB 137.8 billion or approximately $18.9 billion) for further investigation. The 2007 FATF summary report attributes this to the lack of input from the reporting institutions in the process of determining suspicion. This deficiency results in a significantly large number of STRs, the majority of which are of relatively little value during money laundering investigations. The evaluation also rated China as non-compliant with SR IV relating to suspicious transactions reporting linked with terrorism. Along with the other concerns raised in relation to R 13, the FATF report attributed this incomplete assessment to the fact that the obligation to report suspicions of terrorist financing was not explicitly required in Chinese law. According to the 2008 EAG report, subsequent to the 2006 mutual evaluation, the LVT/STR Rules came into force in March 2007 which "extended STR reporting requirements to all financial institutions, including those in the insurance and securities sectors. The Administrative Rules for the Reporting of Suspicious Transactions related to the Financing of Terrorism by Financial Institutions, which came into effect on 21 June 2007, require financial institutions to report suspicious transactions related to terrorist financing activities. Additionally, the CDD Rules require all financial institutions to report some attempted transactions that are suspicious (article 26)." (p. 3). However, the 2008 EAG report does not assign a new compliance rating for China in terms of R 13 or SR IV.

On R 19 regarding other forms of reporting, the FATF mutual evaluation rates China as compliant, and China is given a largely compliant rating with R 25 on guidelines and feedback. The 2007 FATF mutual evaluation found China only partially compliant with R 15 relating to internal controls, compliance and audit. According to the FATF report, the AML Law and the accompanying rules requires all financial institutions to: (1) establish adequate internal AML control programs; (2) provide adequate training for their staff; and (3) to set-up an internal designated AML unit that is responsible for ensuring compliance with AML obligations. However, the mutual evaluation cited the following weaknesses in China's internal control, compliance and audit system: (1) China's internal control regime was not designed to address terrorist financing risk; (2) there was no explicit requirement in the AML Law for financial institutions to have an adequate audit function to test compliance with internal AML/CFT controls; and (3) the AML Law did not require financial institutions to provide relevant employees with CFT training. The CDD Rules that came into effect subsequent to the mutual evaluation requires that financial institutions "establish internal controls to address terrorist financing risks and to maintain an internal audit function (article 4)" (EAG 2008, p. 3).

On R 22 addressing foreign branches and subsidiaries, China is rated as non-compliant. This low rating was due to two main shortcomings, namely: (1) there are no specific provisions in Chinese law or regulations requiring Chinese financial institutions to apply the higher standard where the AML/CFT requirements of China and the host country differ; and (2) there were no requirements in Chinese law or regulations to inform the home country supervisor when a foreign branch or subsidiary is unable to observe appropriate AML/CFT measures. As reported in the 2008 EAG report, the new CDD Rules "require financial institutions to ensure that their foreign branches or subsidiaries follow China’s AML/CFT rules as permitted by the laws or regulations of the host country, or the host country’s rules if these are stricter" (p. 3). The FATF report adjudged China to be partially compliant with R 18 pertaining to shell banks. According to the FATF report, while Chinese law bans the establishment of shell banks in China, there are no specific legal provisions banning local financial institutions from establishing connections with a foreign shell bank.

According to the 2007 FATF mutual evaluation, China is partially compliant with R 17 regarding sanctions and partially compliant with R 23 relating to regulation, supervision and monitoring. On R 29 about supervisors, China is rated largely compliant. Regarding R 17, the FATF report observes that the Law on the PBC, the Law on the Administrative Penalties, the AML Law, the LVT/STR Rules and the Measures for Punishment of Illegal Financial Acts provide Chinese law enforcement with the powers to apply criminal, civil and administrative sanctions to natural and legal persons that fail to comply with China's AML requirements. Nevertheless, the mutual evaluation cites two key weaknesses underlying its rating, namely that the Chinese sanctions regime "focuses excessively on minor deficiencies and does not appear effectively to target structural weaknesses" and that "the level of the sanctions provided in the AML Law appears relatively low for major deficiencies" (p. 152).

Pertaining to regulation, supervision and monitoring (R 23), the FATF report notes that the AML Joint-Ministerial Conference (consisting of 23 ministries and committees), is the overall framework of China's AML institutional regime. Furthermore, the AML Law stipulates that the PBC is the Competent Authority at the head of the conference and is responsible for the AML supervision of all financial institutions. However, the AML Law does not vest all of the responsibility for monitoring AML compliance within the PBC. Other financial sector regulators include the China Banking Regulatory Commission (CBRC), which supervises the banking sector, the China Insurance Regulatory Commission (CIRC), which supervises the insurance sector, and the China Securities Regulatory Commission (CSRC), which supervises the securities sector. However, the FATF report cites as a primary limitation that "no supervisory program [had been] implemented for the securities and insurance sectors following extension of law to these sectors" (p. 153). Per the 2008 EAG report, since the mutual evaluation, AML/CFT supervision has been extended to all financial institutions, including the insurance and securities sectors. Regarding R 29 on supervisors, the FATF report states that the Law on the PBC, the AML Law, the Banking Supervision Law, the Securities Law, Regulations on Futures, the Insurance Law, the LVT/STR Rules and the AML Rules give the PBC, the CBRC, the CSRC and the CIRC the power to supervise the observance of the AML/CFT regulations by financial institutions and to impose administrative penalties on those who fail to fulfill their obligations.

NC3. Preventive Measures - Designated non-Financial Business and Professions

The 2007 FATF mutual evaluation found China to be non-compliant with R 12 on CDD and record keeping obligations for Designated non-Financial Business and Professions (DNFBPs). The report attributed this to China's CDD and record-keeping requirements (as set out in R 5, R. 6, R 8 and R 11) not sufficiently applying to some DNFBPs (as stipulated by the AML Law), such as dealers in precious metals and stones, lawyers, notaries, real estate agents and company service providers. Furthermore, according to the FATF report, "none of the DNFBP sectors legally authorized to operate in China are subject to obligations that relate to Recommendations 6, 8, 9 and 11" (p. 151-152).

On R 16 about STRs for DNFBPs, China is rated as non-compliant. Similarly, concerning R 24 about DNFBP regulation, supervision and monitoring, the FATF mutual evaluation rated China as non-compliant. Primarily, the FATF report attributed its R 16 rating to the fact that China's suspicious transaction reporting obligations have not been extended to any of the DNFBP sectors. Furthermore, under China's current laws and regulations, dealers in precious metals and stones, lawyers, notaries, real estate agents and company service providers are not required to have internal AML/CFT control programs. Regarding R 24, the FATF report noted that, since China's suspicious transaction reporting obligations have not been extended to any of the DNFBP sectors, dealers in precious metals and stones, lawyers, notaries, real estate agents and company service providers are not monitored or supervised for compliance with AML/CFT requirements. In its 2008 follow-up report, the EAG notes that "the AML Joint-ministerial Conference held in November 2007 decided to implement AML/CFT measures in some of the DNFBPs [and] a work plan has been worked out in this regard" (p. 4).

NC4. Legal Person and Arrangements & Non-Profit Organizations

The 2007 FATF mutual evaluation reports that China was non-compliant with R 33 relating to legal persons and access to beneficial ownership and control information. The primary weakness underlying this rating was that China lacks the measures to "ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by the competent authorities" (p. 154). The 2008 follow-up report by the EAG notes that the new CDD Rules require all financial institutions to identify and verify the beneficial owner of their customers. However, the report does not assign a new compliance level for China in regards to R 33.

China is rated partially compliant with the FATF's recommendation on legal arrangements and beneficial owners (R 34). The FATF report cites two key weaknesses in China's legal arrangements regarding beneficial owners. First, Chinese law does not require trust investment companies to establish beneficial ownership of legal persons that are beneficiaries of trusts. Additionally, China is lacking the means with which to obtain timely information on beneficial ownership of trusts that may be administered by private individuals under the Trust law. On SR VIII relating to non-profit organizations, the mutual evaluation finds China largely compliant.

NC5. National and International Co-operation

The 2007 FATF mutual evaluation finds China largely compliant with R 31 on national cooperation, and largely compliant with R 32 on statistics. According to the FATF summary report, "China has a robust framework for domestic co-operation, especially between the FIU and the MPS" (p. 10). The report notes that the AML Joint-Ministerial Conference is the main domestic co-operation framework of China's AML/CFT institutional regime. All those working on AML/CFT issues in China have joined the Conference, which now has 23 members, including the CBRC, which supervises the banking sector, the CIRC, which supervises the insurance sector, and the CSRC, which supervises the securities sector.

The FATF mutual evaluation rates China as partially compliant with R 35 regarding the ratification of international conventions, and partially compliant with SR I on implementing UN instruments. Most importantly regarding R 35, the FATF report notes that, as at the release date of the report in June 2007, neither China's criminalization of money laundering nor its seizure and confiscation regime are fully in line with the UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention), the UN Convention against Transnational Organized Crime (Palermo Convention), and the UN International Convention for the Suppression of the Financing of Terrorism (TF Convention). According to the 2007 FATF report, China is compliant with R 36 concerning Mutual Legal Assistance (MLA). The 2009 U.S. DoS report notes that China has signed MLA treaties with more than 24 countries. For example, in June 2000, China entered into its first mutual legal assistance agreement (MLAA) with the United States. The MLAA allows both countries to exchange records in connection with narcotics and other criminal investigations and proceedings.

China is compliant with R 37 on dual criminality and largely compliant on R 38 pertaining to MLA on confiscation and freezing as noted in the 2007 FATF report. However, regarding R 38, the FATF report cites the lack of a formal legal basis for equivalent value confiscation as an obstacle to the execution of foreign MLA requests based on such orders. With regards to SR V on international cooperation, the mutual evaluation rated China as largely compliant. The 2009 U.S. DoS report adds that, as of 2009, China had signed about 70 memoranda of understanding (MoUs) with more than 40 countries. The 2007 FATF Summary report adjudged China to be compliant on R 39 relating to extraditions, adding that China's extradition regime is "solid and well-organized" (p. 10). Based on the Extradition Law, China has signed extradition agreements with 30 countries, according to the 2009 U.S. DoS report. Finally, on R 40 pertaining to other forms of international co-operation, China is rated largely compliant.